There are a few ways you can pay off your college expenses. One would be through scholarships and grant. Another would be to get a job. I think that just about covers it…wait, that’s right. Loans…
Unlike the other options that are available to you, loans are a risk. You can pull as many as you like, but you must remember, it’s not your money. You’re going to have to pay them (I mean the government…or the banks…whichever is scarier) back eventually, so you must be careful where you pull from and how much you borrow. The advice I always give to those going for this option is “don’t do it”, but if you must, then I guess there’s no stopping you, is there? There are two different kinds of loans:
Federal Loans
These are loans provided by the federal government, obviously, and offer you the best rates.
Stafford Loans. Available to students who are U.S. citizens and are enrolled at least part time in an undergraduate degree program. Students don’t have to pay these loans back until 6 months after graduation (grace period). This one comes in two flavors:
Subsidized– Based on financial need. The maximum students can borrow is $23,000, incurred with an interest rate of 3.4%
Unsubsidized– Not based on financial need. The maximum, students can borrow is $31,000, incurring with interest of 6.8%. The difference between this one and subsidized loans (all other federal loans are subsidized) is that with subsidized loans, the government will pay off the interest on your loan if it ever needs to be deferred (postponed, in other words). For unsubsidized loans, they will not.
Perkins Loans. For this one, the school acts as a bridge between the federal government and you, making itself the lender. This means that you’re paying the school instead of the government. This one is only available to students who are in dire need of financial aid, which basically means that unless you’re unemployed and are receiving less than %50 of your financial support from your parents, it’s unlikely you’ll be able to qualify for this one. Undergrad and Grad students can both pull loans from this one at no more than $27,500 and $60,000 respectively, and all at a fixed rate of 5%.
Parent PLUS Loans. This would of course be a loan where the parent borrows money instead of the student. Parents may borrow as much as the want, equal to the total cost of education minus any aid the student may have already received. The interest rate for this one is fixed at 7.9%
Consolidation Loans. Basically allows you to take all your other loans and lump them together into one pot. The interest rate is the average of your other loans, combined, and will not exceed 8.25%.
Private Loans
If you’ve exhausted all options regarding federal loans, then this one would be your second option. Chances are, you’re probably not even eligible for federal loans, of this may be your only option. Private lenders offer very little forgiveness in comparison to the federal government, so you want to be extra careful where you pull from and be sure to read the fine print. You will most likely be borrowing from a bank or credit union and your interest rate will be dependent on your credit score. This means that your rates can become variable, so while one year you may only have to deal with 5% interest, 4 years down the road you could be dealing with 15% interest.
To add onto this, on top of interest, there are other fees involved when it comes to borrowing loans. These fees can either be deducted from the total loaned or tacked onto the loan amount. I’ve said it before an I’m going to say it again: don’t pull loans. It really isn’t worth it. There isn’t anything fun about coming out of college with a dept hanging over your head, or weighing on your shoulders, or however you want to put it. If you really can’t afford college, then try looking for other options that fall closer within your budget, like community college for instance. Get your 2-year, degree, save up some money, and decide what the best and most affordable option is from there.
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